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. Last Updated: 07/27/2016

Lucrative Aircraft Sales to Gulf States a Mirage




DUBAI, United Arab Emirates -- If this year's Dubai Air Show is any guide, then the world's major military aviation firms can forget about multi-billion contracts to supply oil sheiks with expensive toys.


At last month's sixth bi-annual show, Russian and Ukrainian manufacturers made the best sales, while U.S. majors came away well-nigh empty-handed. However, whereas big deals at previous Dubai expos would have meant rich Arab states restocking their entire airforce with the best killing machines money could buy, this year saw the biggest buys coming from an unlikely source.


Iran, whose relatively limited pockets - and exclusion from U.S. sales - make it an unfashionable client, closed deals with both Ukraine's Antonov Aircraft Corporation and Russia's Tupolev Design Bureau.


The An-140, a twin turboprop transport, and the Tu-334, a regional jet airliner which will be built at the MiG-MAPO plant in Moscow, will also both be license-produced in Iran, making the Iranians the largest customers for Russian aircraft in the region.


While the Russians will be happy to have made a sale, selling civil aircraft to Iran is a far cry from the expectations they - and other nations - had regarding the Dubai air show when it started to become a major event earlier this decade, analysts said.


"This a quite a turnaround from six years ago," one Western observer, who declined to be named, commented.


"In 1993 the Russians were the only country that had an advanced fighter available for sale, the Su-35, so the UAE looked to Russia as the one military hardware supplier that could save them from the specter of an Iranian arms buildup.


"Today, these dreams the Russians had of selling to the UAE are gone, and it is the Iranians who may end up doing the saving, but in this case they will be rescuing the near-bankrupt Russian commercial aircraft industry with this stack of orders."


However, the even more unheard of turnabout is that this may be the only time in recent years that Russian companies came home from an air show with a fistful of new orders and a company such as Lockheed-Martin returned to the shores of the United States empty-handed instead of the other way around. Not exactly the result that would have been predicted three months ago.


The sore spot for Lockheed-Martin and many others - and the poster child for how frustrating the Middle East market has become for aerospace firms - is the now-infamous UAE fighter buy.


The UAE's air force has been tempting aerospace manufacturers on three continents for over 13 years with the prospect of an order of 60 to 80 fighter aircraft.


Markets of this size are scarce in the military aircraft community. So, in the early 1990s Russia's Sukhoi and Mikoyan, or MIG, design bureaux, France's Dassault, British Aerospace, along with Lockheed-Martin and its U.S. competitor McDonnell-Douglas, all rushed to the region to try to peddle their wares to the oil-rich emirates.


Two years ago - after more than a decade of offers, proposals, counteroffers and bilateral security agreements - the UAE announced that the winner was an advanced and not-yet-developed version of the Lockheed-Martin F-16.


That there are winners and losers in these military export sales is a fact of life, but the length of the competition and the extent to which the UAE demanded that the competing firms respond to its requests for information also produced a considerable amount of grumbling and ill will.


"The UAE really stuck it to us," the representative of one Russian aerospace firm commented, as he went on to recount bitterly how many detailed briefings were given to the UAE to no good end. For this and other reasons, Russian attendance at Dubai was more low key than in previous years, and no one has any illusions about the UAE or the rest of the Middle East being some huge moneymaker for the future.


However, unhappiest of all remains the Bethesda, Maryland-based Lockheed-Martin corporation. Having been announced as the winner two years ago, most of the corporation's management and rank-and-file work force had expected the final contract for the next-generation, Block 60 model of the F-16 to be signed during the air show.


Despite negotiating teams that worked around the clock and several pushes by Lockheed-Martin management to bring final issues to closure, the air show came and went without a contract signing.


Champagne put on ice for the sheik's signature on the dotted line ended up being used for a Lockheed-Martin reception where there was now little to celebrate.


In the days since the air show ended, Lockheed-Martin has not reported any movement in the UAE's position.


Military aerospace manufacturers are asking with good reason if there is any good faith involved in any negotiations in which the UAE is a participant. For this and other reasons, the Dubai exposition holds much less attraction for Russian, European and U.S. aerospace firms than it did in its peak in the early 1990s.


Despite this year's flashy marketing campaign - the show was renamed Dubai 2000 despite being held in November 1999 - Dubai looks like the industry's past instead of its future. Along with the name and a spruced-up logo, the air show now features two brand-new exhibition halls with immaculately manicured and landscaped grounds.


The intention was to create an atmosphere that proclaimed that the next century in aerospace business - the dawn of a new age and the second century in the history of the aeroplane - has already begun. Unfortunately, all of the marketing know-how in the world cannot make up for the fact that this new century is shaping up to be one in which Dubai and the rest of the Middle East will see their importance to the aerospace market decline considerably.


When the first such Dubai air show was held 10 years ago, it was considered by most industry analysts to be the beginning period of an arms spending spree by the nations of the Middle East, and for the purpose of generating as much interest and business as possible in their country, UAE officials have encouraged these sentiments. However, these major military procurements that have been projected for years now may have turned out to be little more than a mirage.


Among the UAE's problems is that price increases have reached the point where the country is no longer the bargain travel destination that it used to be. One large U.S. firm ended up moving its business elsewhere when the hotel that the company normally used tripled its rates from two years ago. Prices that are now as high or higher than Moscow or London are slowly running off a number of companies and forcing others to scale back their presence in the UAE.


But perhaps the largest drop in commercial aerospace business in the UAE is because the flood of Russian tourists to the beaches and electronics shops has slowed to a fraction of its former volume. Not only are many of the products that Russians used to flock to purchase now available in Moscow, but the increase in the cost of Russian airline tickets combined with the aftereffects of the 1998 crisis is also taking its toll.


"The fact that the UAE will no longer issue a visa to a Russian woman who is single and under 30 is also not helping business," one airline and tourist business consultant said.